Citigroup Excluded as Argentina Takes Bids

Many of the world’s largest banks, including Credit Suisse First Boston, Citigroup Inc. and J.P. Morgan Chase & Co., were excluded from advising Argentina on renegotiating $95 billion of bonds because they helped the government borrow in the 24 months before last December’s default.

Argentina’s Economy Ministry said it will start accepting bids Dec. 2 and recommended underwriters of any sovereign debt transaction in the two years before the default not take part in the competition. Goldman Sachs Group Inc., Merrill Lynch & Co. and Deutsche Bank AG also managed bond sales in the period.

Excluding banks that helped Argentina become the biggest emerging market borrower overseas in the past decade may make it more difficult for the country to return to capital markets and revive growth, some analysts said. South America’s second-largest country needs an agreement with bondholders to start rebuilding an economy forecast to contract 15 percent this year.

”This is unprofessional and will hurt Argentina the day it wants to return to capital markets,” said Jose Luis Espert, director of Espert & Asoc., which provides economic forecasts for banks and other clients in Argentina. ”Argentina should take responsibility for issuing debt it was unable to repay and not find a scapegoat in some bank that was doing its job.”

$500 Million

Fees for helping restructure Argentina’s debt may between $200 million and $500 million, some analysts said. Economy Minister Roberto Lavagna said earlier this year the debt talks probably would be handled by a group of banks, some from Europe and some from the United States. Ministry spokesman Armando Torres said today “a lot of banks will be left out of the process.” CSFB spokeswoman Christina von Bargen had no comment. Messages left for spokesmen of J.P. Morgan, Goldman and Citigroup weren’t returned. Deutsche Bank spokeswoman Juanita Gutierrez declined to comment. Other banks that managed Argentine debt sales in the two years before the default include Morgan Stanley & Co. and BNP Paribas SA. “We expect some banks to exclude themselves from this process,” Lavagna said in an interview.

Lavagna is scheduled to have talks this week with the International Monetary Fund, which has
said starting negotiations on the defaulted debt is a condition for a new loan agreement. Argentina borrowed more than any other emerging market country in the 1990s, selling overseas bonds to finance an increase in spending and rising interest payments. Investors were drawn by Argentina’s currency stability — the peso was fixed one-to-one with the dollar — and economic growth.

Deposit Freeze

As Argentina struggled to refinance debt payments last year, the government froze deposits, fueling riots that toppled the administration and prompting a devaluation of the currency. Many Argentines have lost all of their savings and opinion polls show that most blame the biggest banks in the country for their losses.

Some Argentine politicians sued former Economy Minister Domingo Cavallo after he hired Credit Suisse First Boston, J.P. Morgan and eight other banks to arrange a government debt exchange in June last year. The banks received $141 million in fees.

`These banks knew Argentina the best, had the best distribution,” said Philip Sofaer, director of Sofaer Global Research LLC, which manages $1 billion of stocks and equities. “Now their interest in the country will diminish.” Many of the banks are also among Argentina’s largest creditors.

Some bondholders said they doubt the current government, led by President Eduardo Duhalde, will make much progress on debt negotiations before a new government takes office in May.
“By its temporary nature, it’s hard to see the current government taking any decisive action on the debt problem,” said George Estes, a director of the Argentina Bondholders’ Committee, which represents investors such as Morgan Stanley Investment Management and Bear Stearns Asset Management Inc.